House prices fell last month for the first time in more than a decade and further gloom is expected after ‘storm clouds gathered’ over the market.
Prices in May fell by 1 per cent compared to the same month a year ago – the biggest year-on-year drop since August 2012 – according to lender Halifax.
It comes amid a warning that 367,000 mortgage borrowers whose fixed rate deals come to an end over the next year will face a shock £300 rise in monthly repayments as they are forced to renew on much more expensive deals.
And in another sign of the squeeze on consumers, the level of household savings fell for the first time in 15 years according to figures from industry body UK Finance.
Kim Kinnaird, director of Halifax Mortgages, said: ‘As expected the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding through to household budgets.’
House prices fell last month for the first time in more than a decade and further gloom is expected after ‘storm clouds gathered’ over the market (file image)
With inflation proving much harder to bring down, markets are pricing in further rises in the Bank of England base rate, leading to mortgage rates rising across the market.
Ms Kinnaird said: ‘This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations, and latest industry figures for both mortgage approvals and completed transactions show demand is cooling.
‘Therefore further downward pressure on house prices is still expected.’
A separate report from the Royal Institution of Chartered Surveyors (RICS) showed sales and buyer interest had slightly picked up in May but warned that the hike in rates would undermine that.
RICS senior economist Tarrant Parsons said: ‘Storm clouds are gathered, with the UK’s stubbornly high inflation likely… prompting the Bank of England to take further action through interest rate rises, leading to higher mortgage rates and ultimately reducing affordability and buyer demand.’
The figures add to the signs of growing pressure on home buyers who are seeing their finances squeezed both by the surging cost of living and the increasing price of borrowing.
Separate data this week showed that record proportions of first-time buyers were now taking out mortgages of more than 35 years’ duration as they try to fulfil the increasingly unaffordable dream of getting on the housing ladder.
The Halifax figures showed the typical UK property cost £286,532 in May, little changed from the month before but down 1 per cent from a year before.
With inflation proving much harder to bring down, markets are pricing in further rises in the Bank of England base rate, leading to mortgage rates rising across the market. Chancellor Jeremy Hunt is pictured in May
Prices have not fallen year-on-year since December 2012 according to the lender’s data.
The report said values in the south of England were under the greatest pressure.
It showed UK property prices have now fallen by about £3,000 over the last 12 months and are down around £7,500 from their peak in August.
However, they are still £5,000 up since the end of last year and £25,000 above the level of two years ago.
Britain’s housing market was buffeted by last autumn’s mini-Budget which created turmoil in bond markets and a sharp spike in mortgage rates. Those rates started to come down in the following months.
But now, evidence that inflation is taking longer than expected to come down has created more turbulence as markets price in the likelihood of further Bank of England rate hikes.
That has prompted a sharp increase in mortgage rates, which are priced on the back of those expectations.
UK Finance figures showed lending to first-time buyers in the first quarter of the year was the weakest since spring 2020.
The number of borrowers falling behind on payments also rose.
And the level of household savings fell for the first time in 15 years ‘as people dipped into their savings pots to pay their bills’, said Eric Leenders, managing director of personal finance at UK Finance.
Meanwhile consumer credit scoring agency Equifax estimated that more than 367,000 fixed rate mortgages are due to come to the end of five-year terms over the coming year.
With an average outstanding balance of £170,000, that will mean a typical increase of £300 in monthly repayments.
Paul Heywood, chief data and analytics officer at Equifax UK, said: ‘We expect to see a gradual increase in missed payments.
‘Diminishing affordability levels may also restrict or even stall growth in house prices, perhaps leading to a correction in the housing market.’